Download - PMM Strategy
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Procurement & Materials
Management - Strategy
Arvind Tiwari
Guest Faculty IIFT
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Overview
• What is Strategy?
• Organisation Objectives & Strategy
•
Supply Chain Objectives & Strategy• Procurement Objectives
• Procurement Strategy
• Strategy in Practice – Tools
– Drivers
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What is Strategy ?
• We are here –
current situation –
baseline
• We want to reach there – objective
• How do we get there ?
• Long term objective with series of milestones
or
• Series of Objectives
• In either case the timeframe is long with short
and medium term checkpoints
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What is Strategy
• Long Term & Dynamic Business Conditions can& do impact the Objective
• Mid term course corrections may be become
necessary• Elements
– Roadmap
– Timeline
– Resources
– Review Mechanism
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Organisation Objectives
• Long , Medium & Short Term
• Revenues , Growth
• Volumes , Market Share
• Profits , Profitability
• Current Products, New Products• Customer Service
• Quality
• Productivity
• People practices
• Sustainability
• CSR
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Organisation Strategy
•
Growth – Organic
– Inorganic
•
Markets & Market Scenarios – International – is the product good for the
relevant market. E.g.: M&M SUV US market entry
– Domestic
– Regional
Big impact of Parent Company strategy in case
of MNCs
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Organisation Strategy
• Products
– Existing – E.g.: the best typewriter
– New
• Technology
– Expected changes
– Current – life cycle
– Acquisition , collaboration, JV
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Organisation Strategy
• Positioning
– Premium
– Niche
– Quality
– Volume
• Profitability
– Price
– Cost
• Customer focus
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Supply Chain Objectives• Long , Medium & Short Term
• Aligned with Organisations Objectives
• Customer Service
• Distribution network improvement
• Outbound Logistics
• Outsourcing / Insourcing
• Quality
• Cost
• Inbound Logistics• New Product Development
• Supplier Development / Rationalisation
• Value Analysis / Value Engineering
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Supply Chain Strategy
• Aligned with Organisation Strategy
• Customer facing
– Distribution effectiveness
– Logistics efficiency
• Operations
– Outsourcing
– FG, WIP, RM Inventory
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Supply Chain Strategy
• Quality
• Cost
•
Delivery• New product development
To be discussed in more detail under
Procurement Strategy• Inbound logistics
• Warehousing
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Procurement Objectives
• Should be
– Based on Organisation & Supply Chain Objectives
– Time frame to be aligned with organisation
– Quantifiable as far as possible
– Specific & time-bound
– The basis for the Commodity Groups objectives
– The basis for individual KRAs
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Procurement Objectives
• Cost
– Reduction in Rupee or % of spend terms
• Localisation
– No of parts / value
• Global sourcing
– No of parts / value
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Procurement Objectives
• New Product Development
– As per the NPI plan
• Supplier base rationalisation
– Target number of suppliers
• New Supplier approval
– If necessary – commodity and number
• Supplier Development
– Number of suppliers and improvement target
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Procurement Objectives
• Innovation
– Introduction of new process / improvement of
existing
• Value Analysis / Value Engineering
– Joint target with PE for specific projects / savings
• Resource development
– Training – internal and external of team members
– target number of days per person
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Commodity Objectives /
Individual Objectives
• Commodity
– Derived from Procurement Objectives
– Allocated across commodities based on spend,
potential, market conditions, complexity etc
• Individual
– Derived from Commodity / Procurement
Objectives
– Finalised based on individual spend, potential,
market conditions, complexity etc
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Procurement Strategy
• To achieve Organisations objectives
• Has a long term but with focus on short term
milestones
• Course corrections based on change in
organisation strategy as well as achievement
or non achievement of objectives
• Each Commodity group has its own objectives
and strategy based on this
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Procurement Strategy - Information•
Ground work required – Commodity grouping
– Spend analysis
–
Supplier wise spend – Commodity wise number of suppliers and spend
– Supplier information
• Performance
• Capability
• Capacity
• Financials
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Spend Value v/s Supplier Risk
• Spend Value (Profit Impact) v/s Supplier Risk
Analysis
• Categorisation into
– Strategic
– Leverage
– Bottleneck
– Non Critical
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Strategic
• Strategic items require the most involvement
with
– Clear objectives
– Regular monitoring
– Course correction if/when required
– Personal interaction at highest level in
procurement
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Leverage
• Leverage items
– Careful handling to maximise benefit without
exploiting supplier – long term view
– Spend value is high so close monitoring essential
to take advantage of market conditions and avoid
impact in unfavourable conditions
–
Avoid single source to take price advantage
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Non critical
• Non critical items
– Reduce buying effort by simplification and
automation
– Less frequent review
– Minimum purchasing effort
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Strategy in Practice
• Strategy has elements at function level and
some at commodity level
• It has to be in line with the long term strategy
• In a particular period it may be more or less
aggressive depending on
– Organisation position
– Suppliers position
– Business scenario - Global & local market trends
– Many other factors
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Strategy in Practice
•Organisation (customer) strength – Brand name
– Current business - volume
–
Potential business –
volume – Geographical proximity
– Business growth
– New market potential – exports
– New products – technology
– Fair business practices , support – supplier
development
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Strategy in Practice
• Supplier strength
– Technology
– Capability
– Capacity
– Cost competitiveness
– Geographical proximity
– Financial strength –
ability to invest
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Tools
• Supplier
– Outsourcing
– Global sourcing
– Localisation
– Supplier base rationalisation
• Exit
• Entry• Reorganisation
– Supplier development
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Tools
•Delivery – Third party logistics
– Information management
• Forecast accuracy
• Information sharing
• Inventory
– VMI
• Packaging review
– Returnable packaging
– Customised packaging
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Tools
• Value Analysis / Value Engineering
• Hedging
– Forex
– Commodities
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Drivers
• Procurement strategy will always be driven by
Corporate & Supply Chain strategies
• Expand capacity without large Capex
– Outsourcing
– E.g.: JCB India
• Best in class Quality
– Highest priority to quality
– Other parameters become secondary
– E.g.: Toyota
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Drivers
• Cost leader – Focus on cost
– E.g.: Videocon
• Frequent new product introduction – Suppliers able to support this requirement needed
• Volume player
– Suppliers with capacities to support and to investin more
– E.g.: Hero MotoCorp, Reliance Mobile
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Drivers• Premium positioning
– Suppliers who understand this and have required
capability
– E.g.: Mercedes ,BMW , Audi, Apple
• Export led growth strategy – Quality and reliability of prime importance
– More elbow room on cost
– E.g.: Bajaj Auto
• Geographical location
– Logistic barriers
– E.g.: Sricity , Bhuj, Baddi etc
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Drivers
• Current and projected volume of business
• Size of parts
– (No) logistic barriers
– E.g.: Mobile , Automobile companies
• Entry into new product segment
– Suppliers with required mindset & capabilities
– E.g.: Tata Motors – CV to PV
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Drivers
•
Business Conditions – Growing market
• High demand from all segments
• Most Suppliers running to capacity or extra
• Customers willing to pay to get supplies in time
– Declining market
• Suppliers with idle capacity
• Willing to do extra• Competition amongst suppliers for whatever available
• Ensuring availability of Supplier Capacity is a
key strategy requirement
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Drivers
• Increasing commodity prices
– Cost pressure on suppliers
• Adverse forex trend
– Cost pressure on imported commodities and parts
– Local commodity players taking advantage
E.g.: Steel Industry
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Drivers
•
Risk appetite of the customer• Single source strategy
– E.g.: Supplier bankruptcies in US/Europe
–E.g.: Customers asking Motherson to acquiresupplier
• Over dependence on supplier(s)
–
E.g.: Mahindra, Rubber supplier• Over dependence of supplier(s) on customer
– E.g.: Mahindra, Casting supplier
–
E.g.: Tata Motors, Tube supplier
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Impact on Parameters
• Top priority to one parameter does not mean
that others will be ignored
• Top parameter will drive the strategy and in
cases of conflict it will override other
considerations
• Other key parameters will remain with
reduced weightages
• Ongoing efforts to improve others without
adversely impacting the top